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So, is there anything new about this federal insurance program that provides benefits to retired persons, the unemployed and the disabled?
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As you probably know, federal law requires that the Social Security Administration base annual Social Security payments on the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers, which measures inflation.
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Cost-of-living adjustments, or COLAs, are intended to ensure that Social Security payments, as well as the equivalent railroad retirement benefits, aren't eroded by inflation. Over the last 25 years, COLAs have averaged 2.74 percent.
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The inflation in the third quarter of each year is compared to the inflation during the same period in the previous year. If inflation is negative, then there is no increase in the Social Security payments. That is what happened for the previous two years.
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There is good news for Americans who receive Social Security and Supplemental Security Income (SSI) benefits because there will be a Cost-of-Living-Adjustment increase for 2014.
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It was officially announced that the COLA increase for 2014 will be 1.5%. The increase in payments began December 30, 2013 for about 8 million SSI beneficiaries and continued during the month of January for the nearly 55 millions Social Security beneficiaries.
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If you're already on Social Security, the number of extra dollars you'll get will depend on the level of your 2013 benefits. But on average, monthly retirement payments will rise from $1,275 to $1,294, an increase of $19 according to the Social Security. Disabled workers will receive an average of $17 more a month, while the average widowed mother with two children will see her benefits grow by $39 a month.
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Also, due to the increase in average wages the maximum earnings amount subject to Social Security taxes will increase from $113,700 to $117,000. About 10 million people out of around 161 million workers will pay higher Social Security taxes because of the increase in the taxable maximum.
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The amount of earnings that you will need to earn one social security credit will increase from $1,160 to $1,200 in 2014.
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Beginning in February 2014, the agency will no longer provide certain documents in its offices, including benefit verification letters and proof of Social Security numbers. However, that information will be available to people who set up personal "my Social Security" accounts online or who call Social Security at 800-772-1213 and request one be mailed to them.
What should you know about taxes?
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| If the only income you received during the tax year was your Social Security or equivalent railroad retirement benefits, your benefits may not be taxable and you may not have to file a tax return. |
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| If you also received other income, your benefits will not be taxable unless your modified adjusted gross income (MAGI) is more than the base amount for your filing status. If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. |
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| No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on IRS rules. If you: |
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- file a federal tax return as an "individual" and your combined income* is
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between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
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more than $34,000, up to 85 percent of your benefits may be taxable.
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- file a joint return, and you and your spouse have a combined income* that is
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between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits |
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more than $44,000, up to 85 percent of your benefits may be taxable. |
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- are married and file a separate tax return, you probably will pay taxes on your benefits.
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| * Combined income means your adjusted gross income, plus nontaxable interest, plus ½ of your Social Security benefits. |
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You should receive your Form SSA-1099 or Form RRB-1099 by early February for the benefits paid in the prior calendar year. The form will show benefits paid to the person who has the legal right to receive them, and the amount of any benefits that were repaid. It will also show amounts by which the benefits were reduced because of received workers' compensation benefits. The substitute workers' compensation benefits would be taxable to the same extent.
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The taxable benefits, if any, must be included in the gross income of the person who has the legal right to receive them. For example, if you and your child received benefits, but the check for your child was made out in your name, you must use only your own portion of the benefits in figuring if any part is taxable to you. In calculating your child's taxable benefits, half of the portion that belongs to your child must be added to your child's other income to determine if any of those benefits are taxable to your child.
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| If you are married and file a joint return, you and your spouse must combine your incomes, social security benefits, and equivalent railroad retirement benefits when figuring the taxable portion of your benefits. Even if your spouse did not receive any benefits, you must add your spouse's income to yours when figuring if any of your benefits are taxable, if you file a joint return. |
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There are worksheets you can use to figure your taxable benefits in the instructions for your Form 1040 or 1040A. You can also check Publication 915 (2013), Social Security and Equivalent Railroad Retirement Benefits that you can find on the IRS website.
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| Some people may have a lump-sum benefit payment. (This type of lump-sum benefit payment should not be confused with the lump-sum death benefit that both the SSA and RRB pay to many of their beneficiaries. No part of the lump-sum death benefit is subject to tax.) |
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| Generally, you use your current year income to figure the taxable part of the total benefits received in that year. However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers your taxable benefits. |
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You may be entitled to deduct certain amounts related to the benefits you receive. For instance, legal expenses for collecting the taxable part of your benefits are deductible as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23.
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| If any part of your social security or equivalent railroad retirement benefits will be taxable in the current tax year, you may request to have additional withholding from other income or pay estimated tax during the year. |
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| You may also choose to have income tax withheld from your social security or equivalent railroad retirement benefits by using Form W-4V, Voluntary Withholding Request. |
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| Calculations for the taxable portion of your Social Security benefits can get rather complex and confusing, therefore help from a tax professional will always be your best choice. |
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